Mar. 31, 2023
Often a risk of any new law and enforcement thereof, is that its bark is worse than its bite. The penalty for billions of dollars worth of violations in our markets should not be millions of dollars worth in fines. For some of the largest Wall St firms, breaking SEC rules and getting caught are merely a cost of doing business, and though I applaud innovation in the market, it must be someone’s job to make sure that crime does not pay. Enforcement actions should be a deterrent for illegal activity rather than tax write-offs on a corporate balance sheet. If I am a cashier in a check out line and I continue to slip money from the register into my own pocket, I would eventually expect to be fired if caught. The same should be true for a broker-dealer of securities on SEC regulated markets. If a registered broker-dealer is found illegally profiting off of their position as a broker-dealer they should lose their license to trade on our markets. I fully support more transparency in our markets. Knowledge is power in the financial industry and more accurate price formation can only be achieved through greater access and transparency. I recently learned about Alternative Trading Systems and "dark pools," which appear to be a method for large financial firms to create advantages by obscuring price formation by routing orders off lit exchanges. Indeed 15 U.S.C. 78k-1 (“section 11A”) states that "It is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure ... fair competition among brokers and dealers, among exchange markets, and between exchange markets and markets other than exchange markets." It is nice to see the commission incentivize real price formation, rather than allowing monopolistic firms profit by exploiting self-created market inefficiencies. However, a rule in which a broker-dealer could route orders to a wholesaler, who sends the order to auction, which could then route back to the wholesaler, encourages and creates parasitic middle-men wholesalers with profound information advantages against other market participants. If I receive non-public information about the price of a stock and make a trade based on that information that would be insider trading, but if a high-frequency firm front-runs retail orders, it's business as usual. The Commission should address this unfair information advantage by having brokers first route to the auction and specify where the order should go if the auction is unsuccessful. This way investors have equal access to pricing knowledge/data. In a time of financial uncertainty, I appreciate the efforts of this commission and support any efforts to reduce the games being played in our markets. Seren